Breakthroughs in digital technology continue to transform and shape how, why and where consumers shop. Increasingly, they favor conducting commerce that does not require a human touchpoint. Practically every industry is spawning digital marketplaces – think Amazon, eBay, Etsy and Uber. The disruptions they trigger are fundamentally changing the industries themselves and the organizations within them. The consumer behavior’s are shifting business models and industries are adapting.

How consumer behavior has shifted in retail.

Simply consider the new retail shopping concept introduced by AmazonGo, where shoppers use an app with advanced technology when taking the products they want and depart without enduring checkout lines. It mirrors Uber and Lyft for ease of use and payment.

This type of dramatic shift raises the question of why one industry in particular – the insurance sector – has been slow to alter its business model to fit today’s needs. The industry offers many lines of coverage, from home, health and life insurance, to very specialized coverage, such as prize indemnification should a golfer snag a hefty prize in a charity event for scoring a hole in one.

Quite a few of these lines of coverage almost certainly can benefit from a simple, on-demand approach to personalized coverage with little, if any, human interaction. And while digital insurers certainly exist, they don’t embrace the “new” digital reality of having on-demand access at your fingertips.

For the most part, they still have lengthy applications to fill out and complicated processes to go through. Plus, they base their online insurance quotes on common driver demographics and actuarial history that’s often decades old.

What traditional insurers seem to forget is the speed at which consumers have changed and the swift arrival of digital natives.

Simply consider: Of consumers born in the age of digital technology, 95 percent own a smartphone, 75 percent have a social network profile and 60 percent rely on the internet for their information. And they often overlook what consumers seek: on-demand service, digital guidance, access to information across all channels, more personalization and predictability, improved affordability and simplicity.

Insurers are experimenting with various digital approaches via innovation labs and corporate venture funds.

Many insurers most are taking a wait-and-see attitude toward moving quickly to adopt inventive new digital technologies. In their defense, insurers contend that digital transformation is tricky and difficult. They cite heavy regulation, large capital requirements, complex policies and middlemen in the distribution chain, such as brokers.

Reflecting that belief, a 2017 study by PricewaterhouseCoopers found that nearly three-in-four insurers consider digital innovation a challenge, and only 28 percent had explored partnerships with fintech firms.  

Still, disruption is the name of the game, and that applies to insurance as well as every other industry.

Take the fast-evolving world of self-driving and semi-autonomous vehicles, which will significantly change the nature of auto insurance. Traditionally, auto insurers base their premium on human error, which causes the vast majority of car accidents, and the demographics of the insurance applicant. But with self-driving cars, auto insurers must use other approaches to determine their premiums, and motorists may expect that they will see lower premiums because the human factor is reduced.

Since self-driving and semi-autonomous vehicles are still in their infancy, manufacturers are having to buy insurance to reflect the possibility of accidents, and carmakers such as Tesla are factoring in insurance costs in pricing their autos. Also, securing self-driving vehicles against hacking is a challenge, so buyers of those cars may also have to purchase cyber insurance.

Startups and entrepreneurs may want to take a look at the business possibilities — in insurance.

McKinsey management consultants have studied digital strategy and insurance and, while noting the industry’s challenges, they wonder how the industry will respond should, say, an innovative powerhouse like Amazon enter the insurance business. Or, should a data aggregator develop more accurate pricing models and partner with an insurtech start-up, which soon sparks strong profitable growth.

“How would these disruptions affect premiums and profitability?” asks McKinsey. “How quickly would insurers feel the impact? How could they respond? And what other digital innovations lie in store?”

Increasingly, lasting success requires innovating at least two of a business model’s four dimensions, as Jiahua Xu of the London-based Institute of Insurance Economics sees it. She describes the distinctive dimensions of a “pay-per-use” business model as:

  •      What do you offer to the customer?
  •      How is the value proposition created?
  •      Why does it work?
  •      Who are your target customers?

In this digital age, allowing consumer behavior to inform the business model promises significant benefits for insurers. Here are several of the advantages.

Better understanding of your customers:

A comprehensive grasp of consumers and your customers generates invaluable insights and proves essential to accomplishing your core business goals. This can be easily achieved by engaging with them in real-time through digital channels that let you chat with your customers as they browse your website, for instance.

Such insights also occur when you engage with them online or elsewhere to gain their impartial feedback on a specific area of customer experience, so you can then act upon it. With advanced analytics, stronger customer touchpoints and other behavioral aids, insurers can quickly and better understand customer attitudes and behavior.

It’s also critical to better understand multicultural customers. As multicultural consumers have accounted for the vast majority of our population growth in recent years, it is important to know how they differ in their attitudes and behaviors about insurance and financial matters in general.

Ability to deliver more flexible offerings with ease and speed:

With consumers demanding speed and on-demand response, and also clearly in control in today’s buying environment, it becomes ever more important to develop and market products and offerings that capture this customer-centricity. Going digital can help provide anytime, anywhere services and determine more quickly what customers seek or don’t favor with products to help gain or retain their business.

Digital third-party administrator services can also help insurers launch products quicker and with a lower cost through combined technology advances, operational expertise, and flexible customer engagement models.

Opportunity to build long-term relationships and customer loyalty:

Digital technology enables insurers to deliver personalized service to customers that, if handled well, can instill customer loyalty and long-lasting ties by delivering convenience to customers’ lives. These tech advances give insurers much more frequent and proactive contact with customers instead of merely sending a bill, renewal notice or a claim.

The conveniences that digital tech can generate to enhance the customer experience cannot be stressed enough.

Digital presents the opportunity to maximize the value of every customer interaction – and with that can improve the value an insurer provides, in addition to customer satisfaction, trust and allegiance. At a time when research indicates consumer trust in insurance hasn’t risen above 50 percent in a decade, insurers can only benefit by providing customers with innovations that make their lives easier and simpler.  

Conclusion:

Prompted by the continuous evolution of digital technology, we’re seeing major shifts in consumer behavior across the board. To gain a competitive edge in this new age, businesses across all industries should consider reevaluating their business model from a customer-centric lens.

Tim Attia

Tim Attia

Tim Attia is the CEO and Co-Founder of Slice Labs, a technology startup and the insurance engine leading tomorrow’s cloud-based, on-demand digital services ecosystems. Using AI, machine learning, and Ph.D. behavioral science expertise in Slice’s Insurance Cloud Services (ICS) platform and Slice Mind capabilities, the company is enabling insurers and technology companies to build truly intelligent and intuitive pay-as-you-go digital insurance products protecting the insured anytime and anywhere. Tim began his career with a large technology and management consulting firm, and has since continued to work with major global insurance carriers on technology and distribution.